A California court ruled earlier this week that early contract termination fees charged by Sprint were illegal and in violation of state law. This issue is far from over, but the involvement of courts in the matter could raise the issue in other states and with the FCC. Wireless carriers have used the leverage of 1 or 2 year contracts and low cost handsets to lock in customers. Early termination fees discourage customers from exiting a contract and switching to a competing carrier.
The ability to move about freely would certainly be a win for consumers in terms of greater choice and freedom to switch carriers if dissatisfied with current service. However, it could have an unintended consequence of driving up costs for handsets. Carriers often sell phones at low prices or even give phones to subscribers in return for a 2-year commitment. If contracts could not include early termination charges, carriers would likely withdraw the carrot of inexpensive phones.
Another way to look at this situation is that wireless carriers should take the prospect of greater customer mobility as a challenge to deliver great service. If customers are satisfied with the quality of the service network, billing, and customer service, there would be fewer reasons to consider switching carriers. Also, if customers have the ability to switch with less financial pain, companies offering innovative products, like the AT&T-Apple iPhone partnership, could gain market share as customers opt to have the latest technologies.
Link: Yahoo! Tech - "California Judge Rules Early Cell Phone Termination Fees Illegal"
Labels: Marketing and Public Policy